Online advertiser ScanScout has agreed to settle Federal Trade Commission charges that it deceptively claimed that consumers could opt out of receiving targeted ads by changing their computer’s web browser settings to block cookies. In fact, ScanScout used Flash cookies, which browser settings could not block. The proposed settlement bars misrepresentations about the company’s data-collection practices and consumers’ ability to control collection of their data. It also requires that ScanScout take steps to improve disclosure of their data collection practices and to provide a user-friendly mechanism that allows consumers to opt out of being tracked.

The FTC investigated ScanScout as part of its ongoing effort to protect consumers’ privacy online. ScanScout is an advertising network that places video ads on websites for advertisers. ScanScout engages in behavioral advertising – it collects information about consumers’ online activities and then serves video ads targeted to their interests.

According to the FTC complaint, from at least April 2007 to September 2009, ScanScout’s website privacy policy discussed how it used cookies to track users’ behavior. The privacy policy stated, “You can opt out of receiving a cookie by changing your browser settings to prevent the receipt of cookies.” However, changing browser settings did not remove or block the Flash cookies used by ScanScout, the FTC charged. The claims by ScanScout were deceptive and violated the FTC Act, the complaint alleged.

The proposed settlement will bar ScanScout from misrepresenting the extent to which consumers’ data is collected, used, shared, or disclosed. Within 30 days after the settlement order becomes effective, ScanScout must place a prominent notice on its home page stating, “We collect information about your activities on certain websites to send you targeted ads. To opt out of our targeted advertisements, click here.” The hyperlink must take consumers to a mechanism that allows them to prevent the company from collecting information that can identify them or their computer; redirecting their browser to third parties that collect data without their approval; and associating any previously collected data with them. The consumer’s choice must last for at least five years, unless the consumer changes it.

The proposed order also requires that, within close proximity to the consumer opt-out mechanism, the company must disclose that it collects consumer data to send targeted ads; that opting out will halt the collection; the current status of the consumer’s choice – for example, whether he or she had opted in or opted out; and circumstances – such as changing the browser a consumer uses – that could automatically change their choice.

In addition, within or immediately next to its targeted display ads, ScanScout must embed a hyperlink to take consumers to the choice mechanism that allows consumers to opt out of receiving targeted ads. Because technical limitations currently prevent ScanScout from embedding a hyperlink in all of its video ads, the order requires the company to undertake reasonable efforts to develop and implement a hyperlink in its video ads and to report regularly to the FTC on its progress.

During the FTC’s investigation, ScanScout merged with Tremor Video, Inc. Tremor also subject to the settlement order.

The FTC today released a new consumer education article, “Cookies: Leaving a Trail on the Web.” It explains how cookies are used to connect your online activities over time, and how you can control information about your browsing.

The Commission vote to approve the administrative complaint and proposed consent agreement was 4-0. The FTC will publish a description of the consent agreement package in the Federal Register shortly. The agreement will be subject to public comment for 30 days, beginning today and continuing through December 8, 2011, after which the Commission will decide whether to make it final. Interested parties can submit written comments electronically or in paper form by following the instructions in the Invitation To Comment part of the “Supplementary Information” section. Comments in electronic form should be submitted using the following weblink: https://ftcpublic.commentworks.com/ftc/scanscoutconsent and following the instructions on the web-based form. Comments in paper form should be mailed or delivered to: Federal Trade Commission, Office of the Secretary, Room H-113 (Annex D), 600 Pennsylvania Avenue, N.W., Washington, DC 20580. The FTC requests that any comment filed in paper form near the end of the public comment period be sent by courier or overnight service, if possible, because U.S. postal mail in the Washington area and at the Commission is subject to delay due to heightened security precautions.

NOTE: The Commission issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the respondent has actually violated the law. A consent order is for settlement purposes only and does not constitute an admission by the respondent that the law has been violated. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $16,000.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC's online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 2,000 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC's website provides free information on a variety of consumer topics. Like the FTC on Facebook and follow us on Twitter.